Investors fearful of a market pullback and desperate for a hedge to lock in gains have pumped more than $900 million into a volatility-linked exchange traded product in the third quarter even though the fund has plunged in value as stocks rally.
The iPath S&P 500 VIX Short Term Futures ETN (VXX) is down 43% for the quarter on a falling CBOE Volatility Index and “contango” in the VIX futures market. The exchange traded note doesn’t replicate the spot VIX. [‘Bull Market in Fear’ — Investors Pile Into VIX ETFs]
Investors have added $913.5 million of new money to VXX in the third quarter, according to ConvergEx Group.
The volatility-linked ETN is trading near all-time lows. The CBOE Volatility Index and all the VIX futures closed lower yesterday on the last trading day before September expiration, optionMONSTER reports.
“With a lack of market-moving economic data, the market has just treaded water near multiyear highs, while the VIX volatility index stays plastered against 52-week lows,” writes David Williamson for The Motley Fool.
VXX, which is designed to track VIX futures contracts, is down 75% year to date, according to Morningstar.
“Volatility futures have a large negative roll yield in steady markets, so the insurance provided by this fund can be very costly even if volatility remains constant,” the investment research firm says in a report on VXX.
The ETN has a market capitalization of $1.7 billion, according to issuer Barclays.
Two leveraged volatility products, ProShares Ultra VIX Short Term Futures ETF (UVXY) and VelocityShares Daily 2X VIX Short Term ETN (TVIX) , have seen inflows of $180.4 million and $90.6 million, respectively, in the third quarter, according to IndexUniverse data.
iPath S&P 500 VIX Short Term Futures
vix-etf
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
